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Chapter 2

Courts and Alternative
Dispute Resolution
INTRODUCTION

Despite the substantial amount of litigation that occurs in the United States, the experience of many students
with the American judicial system is limited to little more that some exposure to traffic court. In fact, most persons
have more experience with and know more about the executive and legislative branches of government than they do
about the judicial branch. This chapter provides an excellent opportunity to make many aware of the nature and
purpose of this major branch of our government.
One goal of this text is to give students an understanding of which courts have power to hear what disputes
and when. Thus, the first major concept introduced in this chapter is jurisdiction. Careful attention is given to the
requirements for federal jurisdiction and to which cases reach the Supreme Court of the United States. It might be
emphasized at this point that the federal courts are not necessarily superior to the state courts. The federal court
system is simply an independent system authorized by the Constitution to handle matters of particular federal interest.
This chapter also covers alternatives to litigation that can be as binding to the parties involved as a courtâ&#x20AC;&#x2122;s
decree. Alternative dispute resolution, including online dispute resolution, is the chapterâ&#x20AC;&#x2122;s third major topic.

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Among important points to remind students of during the discussion of this chapter are that most cases in the
textbook are appellate cases (except for federal district court decisions, few trial court opinions are even published),
and that most disputes brought to court are settled before trial. Of those that go through trial to a final verdict, less
than 4 percent are reversed on appeal. Also, it might be emphasized again that in a common law system, such as
the United States’, cases are the law. Most of the principles set out in the text of the chapters represent judgments in
decided cases that involved real people in real controversies.

CHAPTER OUTLINE
I.

The Judiciary’s Role in American Government
The essential role of the judiciary is to interpret and apply the law to specific situations.
A.

JUDICIAL REVIEW
The judiciary can decide, among other things, whether the laws or actions of the other two branches are
constitutional. The process for making such a determination is known as judicial review.

B.

T HE ORIGINS OF JUDICIAL REVIEW IN THE UNITED STATES
Judicial review was a new concept at the time of the adoption of the Constitution, but it is not mentioned
in the document. Its application by the United State Supreme Court came soon after the United States
began, notably in the case of Marbury v. Madison.

ENHANCING YOUR LECTURE—

MARBURY

V.

MADISON

(1803)

In the edifice of American law, the Marbury v. Madisona decision in 1803 can be viewed as the keystone
of the constitutional arch. The facts of the case were as follows. John Adams, who had lost his bid for reelection
to the presidency to Thomas Jefferson in 1800, feared the Jeffersonians’ antipathy toward business and toward
a strong central government. Adams thus worked feverishly to “pack” the judiciary with loyal Federalists (those
who believed in a strong national government) by appointing what came to be called “midnight judges” just
before Jefferson took office. All of the fifty-nine judicial appointment letters had to be certified and delivered,
but Adams’s secretary of state (John Marshall) had succeeded in delivering only forty- two of them by the time
Jefferson took over as president. Jefferson, of course, refused to order his secretary of state, James Madison,
to deliver the remaining commissions.
M ARSHALL’S DILEMMA
William Marbury and three others to whom the commissions had not been delivered sought a writ of
mandamus (an order directing a government official to fulfill a duty) from the United States Supreme Court, as
authorized by Section 13 of the Judiciary Act of 1789. As fate would have it, John Marshall had stepped down
as Adams’s secretary of state only to become chief justice of the Supreme Court. Marshall faced a dilemma: If
he ordered the commissions delivered, the new secretary of state (Madison) could simply refuse to deliver
them—and the Court had no way to compel action, because it had no police force. At the same time, if

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Marshall simply allowed the new administration to do as it wished, the Court’s power would be severely
eroded.
M ARSHALL’S DECISION
Marshall masterfully fashioned his decision. On the one hand, he enlarged the power of the Supreme
Court by affirming the Court’s power of judicial review. He stated, “It is emphatically the province and duty of
the Judicial Department to say what the law is. . . . If two laws conflict with each other, the courts must
decide on the operation of each. . . . So if the law be in opposition to the Constitution . . . [t]he Court must
determine which of these conflicting rules governs the case. This is the very essence of judicial duty.”
On the other hand, his decision did not require anyone to do anything. He stated that the highest court did
not have the power to issue a writ of mandamus in this particular case. Marshall pointed out that although the
Judiciary Act of 1789 specified that the Supreme Court could issue writs of mandamus as part of its original
jurisdiction, Article III of the Constitution, which spelled out the Court’s original jurisdiction, did not mention writs
of mandamus. Because Congress did not have the right to expand the Supreme Court’s jurisdiction, this section
of the Judiciary Act of 1789 was unconstitutional—and thus void. The decision still stands today as a judicial
and political masterpiece.
APPLICATION TO T ODAY’S W ORLD
Since the Marbury v. Madison decision, the power of judicial review has remained unchallenged. Today,
this power is exercised by both federal and state courts. For example, as your students will read in Chapter 4,
several of the laws that Congress has passed in an attempt to protect minors from Internet pornography have
been held unconstitutional by the courts. If the courts did not have the power of judicial review, the
constitutionality of these acts of Congress could not be challenged in court—a congressional statute would
remain law until changed by Congress. Because of the importance of Marbury v. Madison in our legal
system, the courts of other countries that have adopted a constitutional democracy often cite this decision as
a justification for judicial review.

a. 5 U.S. (1 Cranch) 137, 2 L.Ed. 60 (1803).

ENHANCING YOUR LECTURE—

JUDICIAL

REVIEW

IN

OTHER

N ATIONS

The concept of judicial review was pioneered by the United States. Some maintain that one of the reasons the doctrine was readily accepted in this country was that it fit well with the checks and balances designed
by the founders. Today, all established constitutional democracies have some form of judicial review—the
power to rule on the constitutionality of laws—but its form varies from country to country.
For example, Canada’s Supreme Court can exercise judicial review but is barred from doing so if a law
includes a provision explicitly prohibiting such review. France has a Constitutional Council that rules on the
constitutionality of laws before the laws take effect. Laws can be referred to the council for prior review by the

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president, the prime minister, and the heads of the two chambers of parliament. Prior review is also an option
in Germany and Italy, if requested by the national or a regional government. In contrast, the United States
Supreme Court does not give advisory opinions; be before the Supreme Court will render a decision only
when there is an actual dispute concerning an issue.
FOR CRITICAL ANALYSIS
In any country in which a constitution sets forth the basic powers and structure of government, some
governmental body has to decide whether laws enacted by the government are consistent with that constitution. Why might the courts be best suited to handle this task? Can you propose a better

alternative?

II.

Basic Judicial Requirements
Before a lawsuit can be heard in a court, certain requirements must be met. These requirements relate to
jurisdiction, venue, and standing to sue.
A.

JURISDICTION
Jurisdiction is the power to hear and decide a case. Before a court can hear a case, it must have jurisdiction over both the person against whom the suit is brought or the property involved in the suit and the
subject matter of the case.
1.

Jurisdiction over Persons or Property
Power over the person is referred to as in personam jurisdiction; power over property is referred to
as in rem jurisdiction.
a.

Long Arm Statutes and Minimum Contacts
Generally, a court’s power is limited to the territorial boundaries of the state in which it is located,
but in some cases, a state’s long arm statute gives a court jurisdiction over a nonresident.

b.

Corporate Contacts
A corporation is subject to the jurisdiction of the courts in any state in which it is incorporated,
in which it has its main office, or in which it does business.
ADDITIONAL B ACKGROUND—

Long Arm Statutes
A court has personal jurisdiction over persons who consent to it—for example, persons who reside within
a court’s territorial boundaries impliedly consent to the court’s personal jurisdiction. A state long arm statute
gives a state court the authority to exercise jurisdiction over nonresident individuals under circumstances
specified in the statute. Typically, these circumstances include going into or communicating with someone in
the state for limited purposes, such as transacting business, to which the claim in which jurisdiction is sought
must relate.
The following is New York’s long arm statute, New York Civil Practice Laws and Rules Section 302 (NY
CPLR § 302).

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MCKINNEY’S CONSOLIDATED LAWS OF NEW YORK ANNOTATED
CHAPTER EIGHT OF THE CONSOLIDATED LAWS
ARTICLE 3—JURISDICTION AND SERVICE, APPEARANCE AND CHOICE OF COURT
§ 302. Personal jurisdiction by acts of non-domiciliaries
(a) Acts which are the basis of jurisdiction. As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary, or his executor or
administrator, who in person or through an agent:
1. transacts any business within the state or contracts anywhere to supply goods or services in the state; or
2. commits a tortious act within the state, except as to a cause of action for defamation of character arising
from the act; or
3. commits a tortious act without the state causing injury to person or property within the state, except as to a
cause of action for defamation of character arising from the act, if he
(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives
substantial revenue from goods used or consumed or services rendered, in the state, or
(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial
revenue from interstate or international commerce; or
4. owns, uses or possesses any real property situated within the state.
(b) Personal jurisdiction over non-resident defendant in matrimonial actions or family court proceedings. A court in any matrimonial action or family court proceeding involving a demand for support, alimony,
maintenance, distributive awards or special relief in matrimonial actions may exercise personal jurisdiction
over the respondent or defendant notwithstanding the fact that he or she no longer is a resident or domiciliary
of this state, or over his or her executor or administrator, if the party seeking support is a resident of or
domiciled in this state at the time such demand is made, provided that this state was the matrimonial domicile
of the parties before their separation, or the defendant abandoned the plaintiff in this state, or the claim for
support, alimony, maintenance, distributive awards or special relief in matrimonial actions accrued under the
laws of this state or under an agreement executed in this state.
(c) Effect of appearance. Where personal jurisdiction is based solely upon this section, an appearance does
not confer such jurisdiction with respect to causes of action not arising from an act enumerated in this section.
2.

Jurisdiction over Subject Matter
Subject-matter jurisdiction involves limitations on the types of cases a court can hear.
a.

General and Limited Jurisdiction
A court of general jurisdiction can hear virtually any type of case, except a case that is appropriate for a court of limited jurisdiction.

b.

Original and Appellate Jurisdiction
Courts of original jurisdiction are trial courts; courts of appellate jurisdiction are reviewing
courts.

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3.

Jurisdiction of the Federal Courts
a.

Federal Questions
A suit can be brought in a federal court whenever it involves a question arising under the
Constitution, a treaty, or a federal law.

b.

Diversity of Citizenship
A suit can be brought in a federal court whenever it involves citizens of different states, a foreign
country and an American citizen, or a foreign citizen and an American citizen. Congress
has set an additional requirement—the amount in controversy must be more than
$75,000. For diversity-of-citizenship purposes, a corporation is a citizen of the state in which it
is incorporated and of the state in which it has its principal place of business.
CASE SYNOPSIS—

Case 2.1: Mala v. Crown Bay Marina, Inc.
Kelley Mala was severely burned when his boat exploded after being over-fueled at Crown Bay Marina in
the Virgin Islands. Mala filed a suit in a federal district court against Crown Bay and sought a jury trial. Crown
Bay argued that a plaintiff in an admiralty case does not have a right to a jury trial unless the court has
diversity jurisdiction. Crown Bay asserted that it, like Mala, was a citizen of the Virgin Islands. The court struck
Mala’s jury demand. From a judgment in Crown Bay’s favor, Mala appealed.
The U.S Court of Appeals for the Third Circuit affirmed that Mala failed to prove diversity “because he did
not offer evidence that Crown Bay was anything other than a citizen of the Virgin Islands.”
............................................................................................................................. ..................
Notes and Questions

What are the factors that the court looked at in determining whether minimum contacts existed
between the defendant and the state of North Carolina? The Court of Appeals of North Carolina stated

that North Carolina courts “look at the following factors in determining whether minimum contacts exist: (1)
the quantity of the contacts, (2) the nature and quality of the contacts, (3) the source and connection of the
cause of action to the contacts, (4) the interest of the forum state, and (5) the convenience of the parties.
After examining all of these factors, the court concluded that the defendant had “sufficient minimum contacts
with North Carolina to justify the exercise of personal jurisdiction over [the] defendant without violating the due
process clause.”

ANSWERS TO LEGAL REASONING QUESTIONS
AT THE END OF CASE 2.1
1. What is “diversity of citizenship?” Diversity of citizenship exists when the plaintiff and defendant to a
suit are residents of different states (or similar independent political subdivisions, such as territories). When

CHAPTER 2: COURTS AND ALTERNATIVE DISPUTE RESOLUTION

a suit involves multiple parties, they must be completely diverseâ&#x20AC;&#x201D;no plaintiff may have the same state or
territorial citizenship as any defendant. For purposes of diversity, a corporation is a citizen of both the state
in which it is incorporated and the state in which its principal place of business is located.

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2. How does the presence—or lack—of diversity of citizenship affect a lawsuit? A federal district
court can exercise original jurisdiction over a case involving diversity of citizenship. There is a second
requirement to exercise diversity jurisdiction—the dollar amount in controversy must be more than $75,000.
In a case based on diversity, a federal court will apply the relevant state law, which is often the law of the
state in which the court sits.
3. What did the court conclude with respect to the parties’ “diversity of citizenship” in this case? In
the Mala case, the court concluded that the parties did not have diversity of citizenship. A plaintiff who
seeks to bring a suit in a federal district court based on diversity of citizenship has the burden to prove that
diversity exists. Mala—the plaintiff in this case—was a citizen of the Virgin Islands. He alleged that Crown
Bay admitted to being a citizen of Florida, which would have given the parties diversity. Crown Bay denied
the allegation and asserted that it also was a citizen of the Virgin Islands. Mala offered only his allegation
and did not provide any evidence that Crown Bay was anything other than a citizen of the Virgin Islands.
There was thus no basis for the court to be “left with the definite and firm conviction that Crown Bay was in
fact a citizen of Florida.”
4. How did the court’s conclusion affect the outcome? The court’s conclusion determined the outcome
in this case. Mala sought a jury trial on his claim of Crown Bay’s negligence, but he did not have a right to a
jury trial unless the parties had diversity of citizenship. Because the court concluded that the parties did not
have diversity of citizenship, Mala was determined not to have a jury-trial right.
The outcome very likely would have been different if the court had concluded otherwise. The lower court
had empaneled an advisory jury, which recommended a verdict in Mala’s favor. This verdict was rejected,
however, and a judgment issued in favor of Crown Bay. On appeal, the U.S. Court of Appeals for the Third
Circuit affirmed the lower court’s judgment.

ADDITIONAL B ACKGROUND—

Diversity of Citizenship
Under Article III, Section 2 of the United States Constitution, diversity of citizenship is one of the bases for
federal jurisdiction. Congress further limits the number of suits that federal courts might otherwise hear by
setting a minimum to the amount of money that must be involved before a federal district court can exercise
jurisdiction.
The following is the statute in which Congress sets out the requirements for diversity jurisdiction, including
the amount in controversy.
UNITED STATES CODE
TITLE 28. JUDICIARY AND JUDICIAL PROCEDURE
PART IV—JURISDICTION AND VENUE
CHAPTER 85—DISTRICT COURTS; JURISDICTION
§ 1332. Diversity of citizenship; amount in controversy; costs
(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy
exceeds the sum or value of $75,000, exclusive of interest and costs, and is between--

CHAPTER 2: COURTS AND ALTERNATIVE DISPUTE RESOLUTION

9

(1) citizens of different States;
(2) citizens of a State and citizens or subjects of a foreign state;
(3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and
(4) a foreign state, defined in section 1603(a) of this title, as plaintiff and citizens of a State or of different
States.
For the purposes of this section, section 1335, and section 1441, an alien admitted to the United States for
permanent residence shall be deemed a citizen of the State in which such alien is domiciled.
(b) Except when express provision therefore is otherwise made in a statute of the United States, where the
plaintiff who files the case originally in the Federal courts is finally adjudged to be entitled to recover less than
the sum or value of $75,000, computed without regard to any setoff or counterclaim to which the defendant
may be adjudged to be entitled, and exclusive of interest and costs, the district court may deny costs to the
plaintiff and, in addition, may impose costs on the plaintiff.
(c) For the purposes of this section and section 1441 of this title—
(1) a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the
State where it has its principal place of business, except that in any direct action against the insurer of a
policy or contract of liability insurance, whether incorporated or unincorporated, to which action the insured is
not joined as a party-defendant, such insurer shall be deemed a citizen of the State of which the insured is a
citizen, as well as of any State by which the insurer has been incorporated and of the State where it has its
principal place of business; and
(2) the legal representative of the estate of a decedent shall be deemed to be a citizen only of the same State
as the decedent, and the legal representative of an infant or incompetent shall be deemed to be a citizen only
of the same State as the infant or incompetent.
(d) The word “States”, as used in this section, includes the Territories, the District of Columbia, and the
Commonwealth of Puerto Rico.
(June 25, 1948, c. 646, 62 Stat. 930; July 26, 1956, c. 740, 70 Stat. 658; July 25, 1958, Pub.L. 85-554, § 2,
72 Stat. 415; Aug. 14, 1964, Pub.L. 88-439, § 1, 78 Stat. 445; Oct. 21, 1976, Pub.L. 94-583, § 3, 90 Stat.
2891; Nov. 19, 1988, Pub.L. 100-702, Title II, §§ 201 to 203, 102 Stat. 4646 ; Oct. 19, 1996, Pub.L. 104-317,
Title II, § 205(a), 110 Stat. 3850.)

4.

Exclusive v. Concurrent Jurisdiction
When a case can be heard only in federal courts or only in state courts, exclusive jurisdiction exists.
Federal courts have exclusive jurisdiction in cases involving federal crimes, bankruptcy, patents, and
copyrights; in suits against the United States; and in some areas of admiralty law. States have
exclusive jurisdiction in certain subject matters—for example, divorce and adoptions. W hen both
state and federal courts have the power to hear a case, concurrent jurisdiction exists. Factors for
choosing one forum over another include—
•
•

Availability of different remedies.
Distance to the courthouse.

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•
•

Experience or reputation of the judge.
The court’s bias for or against the law, the parties, or the facts in the case.

B. JURISDICTION IN CYBERSPACE
The basic question in this context is whether there are sufficient minimum contacts in a jurisdiction if the
only connection to it is an ad on the W eb originating from a remote location.
1.

The “Sliding-Scale” Standard
One approach is the sliding scale, according to which—
•
•
•

2.

Doing substantial business online is a sufficient basis for jurisdiction.
Some Internet interactivity may support jurisdiction.
A passive ad is not enough on which to base jurisdiction.

International Jurisdictional Issues
The minimum-contact standard can apply in an international context. As in cyberspace, a firm
should attempt to comply with the laws of any jurisdiction in which it targets customers.
CASE SYNOPSIS—

Case 2.2: Gucci America, Inc. v. Wang Huoqing
Gucci America, Inc., a New York corporation, makes footwear, belts, sunglasses, handbags, and wallets.
Gucci uses twenty-one trademarks associated with its goods. W ang Huoqing, a resident of the People’s
Republic of China, offered for sale through his Web sites counterfeit Gucci goods. Gucci hired a private
investigator in California to buy goods from the sites. Gucci then filed a suit against Huoqing in a federal district
court, seeking damages and an injunction preventing further trademark infringement. The court first had to
determine whether it had jurisdiction.
The court held that it had personal jurisdiction over Wang Huoqing. The U.S. Constitution’s due process
clause allows a federal court to exercise jurisdiction over a defendant who has had sufficient minimum contacts
with the court’s forum. Huoqing’s fully interactive W eb sites met this standard. Gucci also showed that within
the forum Huoqing had made at least one sale—to Gucci’s investigator. The court granted Gucci an injunction.
...............................................................................................................................................
Notes and Questions

What do the circumstances and the holding in this case suggest to a business firm that actively
attempts to attract customers in a variety of jurisdictions? This situation and the ruling in this case
indicate that a business firm actively attempting to solicit business in a jurisdiction should be prepared to
appear in its courts. This principle likely covers any jurisdiction and reaches any business conducted in any
manner.

CHAPTER 2: COURTS AND ALTERNATIVE DISPUTE RESOLUTION

11

ANSWER TO “WHAT IF THE F ACTS WERE DIFFERENT?”
QUESTION IN CASE 2.2
Suppose Gucci had not presented evidence that the defendant made one actual sale through his
Web site to a resident of the court’s district (the private investigator). Would the court still have found
that it had personal jurisdiction over Huoqing? Why or why not? The single sale to a resident of the
district, Gucci’s private investigator, helped the plaintiff establish that the defendant ’s W eb site was
interactive and that the defendant used the Web site to sell goods to residents in the court’s district. It is
possible that without proof of such a sale, the court would not have found that it had personal jurisdiction over
the foreign defendant. The reason is that courts cannot exercise jurisdiction over foreign defendants unless
they can show the defendants had minimum contacts with the forum, such as by selling goods within the
forum.

ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”
QUESTION IN CASE 2.2
Is it relevant to the analysis of jurisdiction that Gucci America’s principal place of business is in
New York rather than California? Explain. The fact that Gucci’s headquarters is in New York state was not
relevant to the court’s analysis here because Gucci was the plaintiff. Courts look only at the defendant’s
location or contacts with the forum in determining whether to exercise personal jurisdiction. The plaintiff’s
location is irrelevant to this determination.

III.

C.

VENUE
A court that has jurisdiction may not have venue. Venue refers to the most appropriate location for a
trial. Essentially, the court that tries a case should be in the geographic area in which the incident
occurred or the parties reside.

D.

STANDING TO SUE
Before a person can bring a lawsuit before a court, the party must have standing.
•

The party must have suffered a harm, or been threatened a harm, by the action about which he or
she is complaining. The controversy at issue must also be real and substantial, as opposed to hypothetical or academic.

•

There must be a causal connection between the injury and the conduct complained of.

•

It must be likely, as opposed to speculative, that a favorable court decision will remedy, or make up
for, the injury suffered.

The State and Federal Court Systems
A.

T HE STATE COURT SYSTEM
Many state court systems have a level of trial courts and two levels of appellate courts.

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ANSWERS TO BUSINESS QUESTIONS IN THE FEATURE—
M ANAGERIAL STRATEGY
1. What are some of the costs of increased litigation delays caused by court budget cuts? Most
attorneys require a retaining fee. The longer this fee is held by the attorney, the higher the present value cost
of the litigation. In addition, the opportunity cost of all of the company employees who work on the litigation
must be included, too. Also, if there is any negative press during the litigation, that will have an impact on the
company’s revenues. Uncertainty about the results of the litigation may cause investors to back away.
Uncertainty about the outcome of the litigation may also cause managers to forestall new projects.

In response to budget cuts, many states have increased their filing fees. Is this fair? Why or why
not? Some argue that those businesses that avail themselves of the court system should pay a higher
2.

percentage of the actual costs of that court system. Others point out that the higher the costs im posed by the
states to those businesses that wish to litigate, the less litigation there will be. And some of that reduced
litigation may be meritorious.
1.

B.

Trial Courts
a.

General Jurisdiction
Trial courts with general jurisdiction include county, district, and superior courts.

Appellate. or Reviewing, Courts
In most states, after a case is tried, there is a right to at least one appeal. Few cases are retried on
appeal. An appellate court examines the record of a case, looking at questions of law and procedure
for errors by the court below. In about half of the states, there is an intermediate level of appellate
courts.

3.

Highest State Courts
In all states, there is a higher court, usually called the state supreme court. The decisions of this
highest court on all questions of state law are final. If a federal constitutional issue is involved in
the state supreme court’s decision, the decision may be appealed to the United States Supreme
Court.

T HE FEDERAL COURT SYSTEM
The federal court system is also three-tiered with a level of trial courts and two levels of appellate courts,
including the United States Supreme Court.
1.

U.S. District Courts
Federal trial courts of general jurisdiction are called district courts. (A district may consist of an
entire state or part of a state. A district court has geographical jurisdiction corresponding to the
territory of its district. Congress determines the number of districts.) Trial courts of limited
jurisdiction include U.S. Tax Courts and U.S. Bankruptcy Courts.

CHAPTER 2: COURTS AND ALTERNATIVE DISPUTE RESOLUTION

IV.

13

2.

U.S. Courts of Appeals
U.S. courts of appeal hear appeals from the decisions of the district courts located within their
respective circuits. (The U.S. and its territories are divided into twelve judicial circuits. The
jurisdiction of a thirteenth circuit—the federal circuit—is national but limited to certain subject matter.)
The decision of each court of appeals is binding on federal courts only in that circuit.

3.

The United States Supreme Court
The court at the top of the federal system is the United States Supreme Court to which further appeal is not mandatory but may be possible.
a.

Appeals to the Supreme Court
A party may ask the Court to issue a writ of certiorari, but the Court may deny the petition.
Denying a petition is not a decision on the merits of the case. Most petitions are denied.

b.

Petitions Granted by the Court
Typically, the Court grants petitions only in cases that at least four of the justices view as
involving important constitutional questions.

Alternative Dispute Resolution
The advantage of alternative dispute resolution (ADR) is its flexibility. Normally, the parties themselves can
control how the dispute will be settled, what procedures will be used, and whether the decision reached
(either by themselves or by a neutral third party) will be legally binding or nonbinding. Approximately 95
percent of cases are settled before trial through some form of ADR.
A.

NEGOTIATION
In a negotiation, the parties attempt to settle their dispute informally, with or without attorneys. They try
to reach a resolution without the involvement of a third party acting as mediator.

B.

M EDIATION
In mediation, the parties attempt to come to an agreement with the assistance of a neutral third party, a
mediator. Mediation is essentially a form of “assisted negotiation.” The mediator does not make a
decision on the matter being disputed.

C.

ARBITRATION
A more formal method of ADR is arbitration, in which a neutral third party or a panel of experts hears a
dispute and renders a decision. The decision can be legally binding. Formal arbitration resembles a trial.
The parties may appeal, but a court’s review of an arbitration proceeding is more restricted than a review
of a lower court’s proceeding.
1.

The Arbitration Decision
An arbitrator’s award will be set aside only if—
•
•
•

2.

The arbitrator’s conduct or “bad faith” substantially prejudiced the rights of a party.
The award violates public policy.
The arbitrator exceeded his or her powers.

Arbitration Clauses
Virtually any commercial matter can be submitted to arbitration. Often, parties include an arbitration
clause in a contract. Parties can also agree to arbitrate a dispute after it arises.

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3.

Arbitration Statutes
Most states have statutes (often based on the Uniform Arbitration Act of 1955) under which
arbitration clauses are enforced, and some state statutes compel arbitration of certain types of
disputes. At the federal level, the Federal Arbitration Act (FAA), enacted in 1925, enforces arbitration
clauses in contracts involving maritime activity and interstate commerce.
CASE SYNOPSIS—

Case 2.3: Cleveland Construction, Inc. v. Levco Construction, Inc.
Cleveland Construction, Inc. (CCI), was the general contractor on a project to build a grocery store in
Houston, Texas. CCI hired Levco Construction, Inc., as a subcontractor to perform excavation and grading.
The contract provided that any dispute would be resolved by arbitration in Ohio. When a dispute arose, Levco
filed a suit against CCI in a Texas state court. CCI sought to compel arbitration in Ohio under the Federal
Arbitration Act (FAA). Because a Texas statute allows a party to void a contract provision that requires
arbitration outside Texas, the court denied CCI’s request. CCI appealed.
A state intermediate appellate court reversed. The parties had a valid arbitration agreement. If the court
applied the Texas statute, it would void the agreement. This, the court decided, “would undermine the declared
federal policy of rigorous enforcement of arbitration agreements.” And the FAA, as a federal law, preempted
the Texas statute under the supremacy clause.
............................................................................................................................. .....................
Notes and Questions

Considering the relative bargaining power of the parties, was it fair to enforce the arbitration
clause in this contract? Yes, because either party could have refused to agree to the contract when it
contained the arbitration clause. Of course, such clauses are likely to be ruled fair and enforceable when the
parties are of equal bargaining strength.

Why do you think that Levco did not want its claim decided by arbitration? A party is typically
reluctant to enter into a proceeding that he or she (or it) believes will have an unfavorable result. Levco might
have had a less complex claim that could have been resolved more favorably in a court, or its claim might
have lent itself to a legal, adversarial argument, which would have held less weight in arbitration Arbitration’s
disadvantages include the unpredictability of results, the lack of required written opinions, the difficulty of
appeal, and the possible unfairness of the procedural rules. Levco might have wanted to avoid arbitration for
any or all of these reasons. Also, arbitration can be nearly as expensive as litigation, particularly when, as
here, its venue is a distant location. Levco may have been simply trying to reduce the duration of the dispute
and its cost.

ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”
QUESTION IN CASE 2.3
How would business be affected if each state could pass a statute, like the one in Texas, allowing
parties to void out-of-state arbitrations? If all states could pass statutes like the one in Texas, many

CHAPTER 2: COURTS AND ALTERNATIVE DISPUTE RESOLUTION

15

parties would probably be less inclined to transact business. An arbitration provision allows a party to limit the
burden and expense of settling any disputes. If another party could freely void such an agreement, there would
be a greater risk of arbitration in an inconvenient forum, costly formal litigation, or both. That risk increases the
perceived costs of doing business, making the business opportunity less attractive. Thus, many parties may
decline to enter contracts without enforceable arbitration provisions.

ANSWER TO “THE SOCIAL DIMENSION”
QUESTION IN CASE 2.3
Considering the relative bargaining power of the parties, was it fair to enforce the arbitration
clause in this contract? Why or why not? Yes, because either party could have refused to agree to the
contract when it contained the arbitration clause. Of course, such clauses are likely to be ruled fair and
enforceable when, as in this case, the parties are of relatively equal bargaining strength.

ADDITIONAL C ASES ADDRESSING THIS ISSUE —
Recent cases examining the validity of arbitration agreements include the following.
•
Circuit City Stores, Inc. v. Ahmed, 283 F.3d 1198 (9th Cir. 2002) (an arbitration clause is not unconscionable, and thus it is enforceable, when it contains a provision that grants an employee a meaningful
opportunity to opt out of binding arbitration).
•
McCaskill v. SCI Management Corp., 285 F.3d 623 (7th Cir. 2002) (an arbitration clause invoked to
compel the arbitration of claims of sexual harassment and other employment discrimination is invalid, and
thus unenforceable, when it requires that the employee pay all fees).
•
Cash in a Flash Check Advance of Arkansas, L.L.C. v. Spencer, 348 Ark. 459, 74 S.W.3d 600 (2002) (in
a customer’s suit against a check-cashing company, alleging that its fees were usurious, an agreement
containing an arbitration clause was not legally enforceable due to a lack of mutuality).
4.

The Issue of Arbitrability
A court can consider whether the parties to an arbitration clause agreed to submit a particular dispute
to arbitration. The court may also consider whether the rules and procedures that the parties
agreed to are fair.

In early neutral case evaluation, the parties select a neutral third party (generally an expert in the
subject of the dispute) to evaluate their positions. This forms the basis for negotiations.

•

In a mini-trial, each party’s attorney argues the party’s case. Typically, a neutral third party (often an
expert in the disputed subject) acts as an adviser. If the parties fail to reach an agreement, the
adviser renders an opinion as to how a court would likely decide the issue.

•

The federal system uses the summary jury trial (SJT). The litigants present their arguments and
evidence, and a jury renders a nonbinding verdict. Mandatory negotiations follow.

E.

PROVIDERS OF ADR SERVICES
A major provider of ADR services is the American Arbitration Association (AAA). Most of the largest law
firms in the nation are members of this nonprofit association, which settles nearly sixty thousand
disputes a year. Hundreds of for-profit firms around the country also provide dispute-resolution services.

F.

ONLINE DISPUTE RESOLUTION
When outside help is needed to resolve a dispute, there are a number of Web sites that offer online
dispute resolution (ODR). ODR may be best for resolving small- to medium-sized business liability claims,
which may not be worth the expense of litigation or traditional ADR.

International Dispute Resolution
A.

FORUM-SELECTION AND CHOICE-OF-LAW CLAUSES
Parties to international contracts may include forum-selection and choice-of-law clauses to protect
themselves if disputes arise.

B.

ARBITRATION CLAUSES
Parties to international contracts may include arbitration clauses to be applied if disputes arise.

C.

INTERNATIONAL TREATIES AND ARBITRATION
International treaties sometimes stipulate arbitration for resolving disputes.

TEACHING SUGGESTIONS
1. Divide students into small groups and assign one of the text chapter’s end-of- chapter problems to each
group. Have each group determine whether or not the assigned problem is one that would lend itself to alternative dispute resolution. If not, why not? If so, which form of alternative dispute resolution would the

group recommend?

2. Obtain a standard arbitration agreement form from a national arbitration organization such as the
American Arbitration Association. Ask students to discuss specific features of these agreements and the factors that might make them hesitant to submit a dispute to arbitration.
3. Some students may find it enlightening to be reminded the law corresponds to the many ways in which
people organize the world. That is, the law includes customs, traditions, rules, and objectives that people

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INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, THIRTEENTH EDITION

have held in different circumstances at different times. While it often seems that the law creates meaningless
distinctions, it is in fact the real needs of real people that create them.
4. In the courtroom, changes are being wrought by television. There is an increasing reliance on video
testimony. Children who allege physical or sexual abuse, for example, may give video testimony outside a
courtroom to be shown during trial proceedings. Lawyers who represent accident victims often commission
videos to visually show the court the impact of accident-related injuries on the daily lives of their clients. In
criminal trials, judges have allowed juries to see filmed reenactments of crimes. To further blur the line between
simulation and reality is the increasing number of cameras that videotape the commission of alleged
crimes and other wrongs. What effect are these uses of television having on the judicial system? Could

jurors watch trials on their televisions at home and reach a verdict by interactive cable? Through a
familiarity with movies and TV shows, could jurors come to expect more excitement than is generated
in the usual courtroom when at least some of the proceeding is on video? Will lawyers argue their
cases to appeal to home audiences? And what effect might all of this have on the U.S. judicial
system’s impartiality and fairness?

Cyberlaw Link
Ask your students to what extent those who send e-mail over the Internet should be liable for the content
of their messages in states other than their own (or nations other than the United States). Is the existence of

a Web site a sufficient basis to exercise jurisdiction?

DISCUSSION QUESTIONS
If a corporation is incorporated in Delaware, has its main office in New York, and does business in
California, but its president lives in Connecticut, in which state(s) can it be sued? Delaware, New York, and
1.

California—a corporation is subject to the jurisdiction of the courts in any state in which it is incorporated, in which it
has its main office, or in which it does business.
2.
What is the difference between a court of general jurisdiction and a court of limited jurisdiction? A
court with general jurisdiction can hear virtually any type of case, except a case that is appropriate for a court with
limited jurisdiction. Trial courts with general jurisdiction include county, district, and superior courts. Trial courts with
limited jurisdiction include local municipal courts (which handle mainly traffic cases), small claims courts, and
domestic relations courts. Thus, for example, small claims disputes are typically assigned to courts that hear only
small claims disputes.
3.
What is the role of a court with appellate jurisdiction? Courts of appellate jurisdiction are reviewing
courts—they review cases brought on appeal from trial courts, which are courts of original jurisdiction. In most states,
after a case is tried, there is a right to at least one appeal. An appellate court examines the record of a case, looking
at questions of law and procedure for errors by the court below.
4.
When may a federal court hear a case? Federal courts have jurisdiction in cases in which federal
questions arise, in cases in which there is diversity of citizenship, and in some other cases. W hen a suit involves a
question arising under the Constitution, a treaty, or a federal law, a federal question arises. W hen a suit involves
citizens of different states, a foreign country and an American citizen, or a foreign citizen and an American citizen,
diversity of citizenship exists. In diversity suits, there is an additional requirement—the amount in controversy must

CHAPTER 2: COURTS AND ALTERNATIVE DISPUTE RESOLUTION

19

be more than $50,000. Federal courts have exclusive jurisdiction in cases involving federal crimes, bankruptcy,
patents, and copyrights; in suits against the United States; and in some areas of admiralty law.
5.
When may the United States Supreme Court hear a case? The United States Supreme Court has original
in only a few situations. The Supreme Court can review any case decided by a federal court of appeals and any case
decided by a state’s highest court in which a federal constitutional issue is involved.

When may a court exercise jurisdiction over a party whose only connection to the jurisdiction is via
the Internet? One way to phrase the issue is when, under a set of circumstances, there are sufficient minimum
6.

contacts to give a court jurisdiction over a remote party. If the only contact is an ad on the Web originating from a
remote location, the outcome to date has generally been that a court cannot exercise jurisdiction. Doing considerable
business online, however, generally supports jurisdiction. The “hard” cases are those in which the contact is more
than an ad but less than a lot of activity.
7.
How does the process of negotiation work? In the process of negotiation, the parties come together informally, with or without attorneys to represent them. Within this informal setting the parties air their differences and
try to reach a settlement or resolution without the involvement of independent third parties. Because no third parties
are involved and because of the informal setting, negotiation is the simplest form of alternative dispute resolution.
8.
What is the principal difference between negotiation and mediation? The major difference between
negotiation and mediation is that mediation involves the presence of a third party called a mediator. The mediator
assists the parties in reaching a mutually acceptable agreement. The mediator talks face to face with the parties and
allows them to discuss their disagreement in an informal environment. The mediator’s role, however, is limited to
assisting the parties. The mediator does not decide a controversy; he or she only aids the process by helping the
parties more quickly find common ground on which they can begin to reach an agreement for themselves.
9.
What is arbitration? The process of arbitration involves the settling of a dispute by an impartial third party
(other than a court) who renders a legally binding decision. The third party who renders the decision is called an
arbitrator. Arbitration combines the advantages of third-party decision making—as provided by judges and juries in
formal litigation—with the speed and flexibility of rules of procedure and evidence less rigid than those governing
courtroom litigation.
10.
What kinds of disputes may be subject to arbitration? The FAA requires that courts give deference to all
voluntary arbitration agreements in cases governed by federal law. Virtually any dispute can be the subject of
arbitration. A voluntary agreement to arbitrate a dispute normally will be enforced by the courts if the agreement does
not compel an illegal act or contravene public policy.

ACTIVITY AND RESEARCH ASSIGNMENTS
1.
Have students prepare a chart showing the relationships between the various courts having jurisdiction in
your state. (There is a digest of each state’s courts in Martindale-Hubbell Law Directory, which might be placed on
reserve in the library.) Assign a few jurisdiction hypotheticals. For example—Through which of these courts
could a divorce decree be appealed? Which court(s) would have original jurisdiction in a truck accident in-

volving out-of-state residents (does the dollar amount of injuries and damage make a difference)? Which
court(s) would have jurisdiction to render a judgment in a case arising from food poisoning at a local
cheeseburger stand that is part of a nationwide corporate chain? In which court(s) could you file a suit alleg ing discrimination, and if you lost, to which court could you appeal the decision?

20

2.

INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, THIRTEENTH EDITION

Ask the class to research the reasons behind the earlier hostility of the courts towards arbitration procedures.

Were they concerned solely with parties being divested of their rights or did they see arbitration as a
challenge to their own authority?
3.
Have students investigate the dispute resolution services discussed in this chapter by going online and
reading some the disputes submitted for resolution or the results in individual cases (on the ICANN W eb site, for
example).

EXPLANATION OF SELECTED FOOTNOTES IN THE TEXT
Footnote 5: In International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95
(1945), the state of Washington sought unemployment contributions from the International Shoe Company based on
commissions paid to its sales representatives who lived in the state. International Shoe claimed that its activities
within the state were not sufficient to manifest its “presence.” It argued that (1) it had no office in Washington; (2) it
employed sales representatives to market its product in Washington, but no sales or purchase contracts were made
in the state; and (3) it maintained no inventory in Washington. The company claimed that it was a denial of due
process for the state to subject it to suit. The Supreme Court of W ashington ruled in favor of the state, and
International Shoe appealed to the United States Supreme Court.
The United States Supreme Court affirmed the W ashington Supreme Court’s decision—International Shoe
had sufficient contacts with the state to allow the state to exercise jurisdiction constitutionally over it. The Court found
that the activities of the Washington sales representatives were “systematic and continuous,” resulting in a large
volume of business for International Shoe. By conducting its business within the state, the company received the
benefits and protections of the state laws and was entitled to have its rights enforced in state courts. Thus,
International Shoe’s operations established “sufficient contacts or ties with the state . . . to make it reasonable and
just according to our traditional conception of fair play and substantial justice to permit the state to enforce the
obligation” that the company incurred there.

Footnote 10: In Zippo Manufacturing Co. v. Zippo Dot.Com, Inc., 952 F.Supp. 1119 (W.D.Pa. 1997), a
federal district court proposed three categories for classifying the types of Internet business contact: (1) substantial
business conducted online, (2) some interactivity through a W eb site, and (3) passive advertising. Jurisdiction is
proper for the first category, improper for the third, and may or may not be appropriate for the second. Zippo
Manufacturing Co. (ZMC) makes, among other things, “Zippo” lighters. ZMC is based in Pennsylvania. Zippo Dot
Com, Inc. (ZDC), operates a W eb page and an Internet subscription news service. ZDC has the exclusive right the
domain names “zippo.com,” “zippo.net,” and “zipponews.com.” ZDC is based in California, and its contacts with
Pennsylvania have occurred almost exclusively over the Internet. Two per cent of its subscribers (3,000 of 140,000)
are Pennsylvania residents who contracted over the Internet to receive its service. ZDC has agreements with seven
ISPs in Pennsylvania to permit their subscribers to access the service. ZMC filed a suit in against ZDC, alleging
trademark infringement and other claims, based on ZDC’s use of the word “Zippo.” ZDC filed a motion to dismiss for
lack of personal jurisdiction. Holding that ZDC’s connections to the state fell into the first category, the court denied
the motion.

REVIEWING—

CHAPTER 2: COURTS AND ALTERNATIVE DISPUTE RESOLUTION

COURTS AND ALTERNATIVE DISPUTE RESOLUTION
Stan Garner resides in Illinois and promotes boxing matches for SuperSports, Inc., an Illinois corporation.
Garner created the concept of “Ages” promotion—a three-fight series of boxing matches pitting an older
fighter against a younger fighter. The concept had titles for each of the three fights, including “Battle of the
Ages.” Garner contacted George Foreman and his manager, who both reside in Texas, to sell the idea, and
they arranged a meeting in Las Vegas, Nevada. During negotiations, Foreman’s manager signed a
nondisclosure agreement prohibiting him from disclosing Garner’s promotional concepts unless the parties
signed a contract. Nevertheless, after negotiations fell through, Foreman used Garner’s “Battle of the Ages”
concept to promote a subsequent fight. Garner filed suit against Foreman and his manager in a federal
district court located in Illinois, alleging breach of contract. Ask your students to answer the following
questions, using the information presented in the chapter.
1. On what basis might the federal district court in Illinois exercise jurisdiction in this case? The
federal district court exercises jurisdiction because the case involves diversity of citizenship. Diversity
jurisdiction requires that the plaintiff and defendant be from different jurisdictions and that the dollar amount of
the controversy exceed $75,000. Here, Garner resides in Illinois, and Foreman and his manager live in Texas.
Because the dispute involved the promotion of boxing matches with George Foreman, the amount in
controversy exceeded $75,000.
2. Does the federal district court have original or appellate jurisdiction? Original jurisdiction, because
the case was initiated in that court and that is where the trial will take place. Courts having original jurisdiction
are courts of the first instance, or trial courts—that is courts in which lawsuits begin and trials take place. In
the federal court system, the district courts are the trial courts, so the federal district court has original
jurisdiction.

Suppose that Garner had filed his action in an Illinois state court. Could an Illinois state court
exercise personal jurisdiction over Foreman or his manager? Why or why not? No, because the
3.

defendants lacked minimum contacts with the state of Illinois. Because the defendants were from another
state, the court would have to determine if they had sufficient contacts with the state for the Illinois court to
exercise jurisdiction based on a long arm statute. Here, the defendants never went to Illinois, and the contract
was not formed in Illinois. Thus, it is unlikely that an Illinois state court would find sufficient minimum contacts
to exercise jurisdiction.

Assume that Garner had filed his action in a Nevada state court. Would that court have personal
jurisdiction over Foreman or his manager? Explain. Yes, because the defendants met with Garner and
4.

formed a contract in the state of Nevada. A state can exercise jurisdiction over out-of-state defendants under
a long arm statute if defendants had sufficient contacts with the state. Because the parties met Garner and
negotiated the contract in Nevada, a court would likely hold these activities were sufficient to justify a Nevada
court’s exercising personal jurisdiction.

DEBATE THIS:
In this age of the Internet, when people communicate via e-mail, texts, tweets, Facebook, and
Skype, is the concept of jurisdiction losing its meaning? Many believe that yes, the idea of determining
jurisdiction based on individuals’ and companies’ physical locations no longer has much
meaning. Increasingly, contracts are formed via online communications. Does it matter where one of the
parties has a physical presence? Does it matter where the e-mail server or Web page server is

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INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, THIRTEENTH EDITION

located? Probably not.
In contrast, in one sense, jurisdiction still has to be decided when conflicts arise. Slowly, but ever so
surely, courts are developing rules to determine where jurisdiction lies when one or both parties used online
systems to sell or buy goods or services. In the final analysis, a specific court in a specific physical location
has to try each case.

EXAMPREP—

ISSUE SPOTTERS
1. Sue uses her smartphone to purchase a video security system for her architectural firm from

Tipton, Inc., a company that is located in a different state. The system arrives a month after the
projected delivery date, is of poor quality, and does not function as advertised. Sue files a suit against
Tipton in a state court. Does the court in Sue’s state have jurisdiction over Tipton? What factors will
the court consider? Yes, the court in Sue’s state has jurisdiction over Tipton on the basis of the company’s
minimum contacts with the state.
Courts look at the following factors in determining whether minimum contacts exist: the quantity of the
contacts, the nature and quality of the contacts, the source and connection of the cause of action to the
contacts, the interest of the forum state, and the convenience of the parties. Attempting to exercise jurisdiction
without sufficient minimum contacts would violate the due process clause. Generally, courts have found that
jurisdiction is proper when there is substantial business conducted online (with contracts, sales, and so on).
Even when there is only some interactivity through a Web site, courts have sometimes held that jurisdiction is
proper. Jurisdiction is not proper when there is merely passive advertising.
Here, examining all of these factors, particularly the sale of the security system to a resident of the state
and the relative inconvenience of the plaintiff to litigate in the defendant’s state, the defendant had sufficient
minimum contacts with the state to justify the exercise of jurisdiction over the defendant without violating the
due process clause.

The state in which Sue resides requires that her dispute with Tipton be submitted to mediation or
nonbinding arbitration. If the dispute is not resolved, or if either party disagrees with the decision of
the mediator or arbitrator, will a court hear the case? Explain. Yes, if the dispute is not resolved, or if
2.

either party disagrees with the decision of the mediator or arbitrator, a court will hear the case. It is required
that the dispute be submitted to mediation or arbitration, but this outcome is not binding.

Chapter 2

Courts and Alternative
Dispute Resolution
Case 2.1
C.A.3 (Virgin Islands),2013.
Mala v. Crown Bay Marina, Inc.
704 F.3d 239
United States Court of Appeals,
Third Circuit.
Kelley Joseph MALA, Appellant
v.
CROWN BAY MARINA, INC.
No. 10â&#x20AC;&#x201C;4710.
Submitted Pursuant to Third Circuit L.A.R. 34.1(a) Dec. 3, 2012.
Filed: Jan. 7, 2013.
OPINION
SMITH, Circuit Judge.
Kelley Mala sued Crown Bay Marina after his boat exploded. The District Court conducted a bench trial during
which Mala represented himself and after which the court rejected his negligence claims. Mala now contends that the
court should have provided him with additional assistance because of his status as a pro se litigant. He also contends
that the court wrongfully denied his request for a jury trial and improperly ruled on a variety of post-trial motions. We

reject these contentions and we will affirm.
I
Mala is a citizen of the United States Virgin Islands. On January 6, 2005, he went for a cruise in his powerboat
near St. Thomas, Virgin Islands. W hen his boat ran low on gas, he entered Crown Bay Marina to refuel. Mala tied the
boat to one of Crown Bay's eight fueling stations and began filling his tank with an automatic gas pump. Before walking
to the cash register to buy oil, Mala asked a Crown Bay attendant to watch his boat.
By the time Mala returned, the boat's tank was overflowing and fuel was spilling into the boat and into the water.
The attendant manually shut off the pump and acknowledged that the pump had been malfunctioning in recent days.
Mala began cleaning up the fuel, and at some point, the attendant provided soap and water. Mala eventually departed
the marina, but as he did so, the engine caught fire and exploded. Mala was thrown into the water and was severely
burned. His boat was unsalvageable.
More than a year later, Mala sued Crown Bay in the District Court of the Virgin Islands. FN1 Mala's pro se complaint
asserted two claims: first, that Crown Bay negligently trained and supervised its attendant, and second, that Crown
Bay negligently maintained its gas pump. The complaint also alleged that the District Court had admiralty and
diversity jurisdiction over the case, and it requested a jury trial. At the time Mala filed the complaint, he was
imprisoned in Puerto Rico. Although the record is silent on the reason for his imprisonment, it is fair to say that he is a
seasoned litigant—in fact, he has filed at least twenty other pro se lawsuits.FN2 See Appellee's Br. at 21–22.
FN1. Chief Judge Curtis Gomez was initially assigned the case, but Judge Juan Sanchez took over in the
middle of 2010 and presided over the trial.
FN2. Mala requested a court-appointed attorney in this case, but the District Court denied the request
because his history of filing frivolous lawsuits prevented him from securing in forma pauperis status. See 28
U.S.C. § 1915.
Mala's original complaint named “Crown Bay Marina Inc.” as the sole defendant. But Mala soon amended his
complaint by adding other defendants—including Crown Bay's dock attendant, Chubb Group Insurance Company,
Crown Bay's attorney, and “Marine Management Services Inc, [a] registered corporation entity duly licensed to conduct
business in the State of Florida ..., d/b/a Crown Bay Marina Inc, [ ] a corporate entity duly licensed to conduct business
in St. Thomas Virgin Islands of the Unites States.” JA 55. The District Court allowed Mala to amend his complaint a
second time by adding his wife as a plaintiff—though the court dismissed her loss-of-consortium claim shortly
thereafter. Mala later attempted to amend his complaint a third time by adding Texaco as a defendant. The District
Court rejected this attempt for failing to comply with Federal Rule of Civil Procedure 15(a)(2) (requiring the other
side's consent or the court's leave).FN3
FN3. Because the District Court refused to add Texaco as a defendant, see JA 94 n.2, we have omitted
“Texaco Puerto Rico” from the case caption.
As the trial approached, two significant incidents took place. First, the District Court decided on its own to identify
the parties to the case. It concluded that the only parties were Mala and “Marine Services Management d/b/a Crown
Bay Marina, Inc.” JA 132. It thereby dismissed all other defendants that Mala had named in his various pleadings.
Next, Crown Bay filed a motion to strike Mala's jury demand. Crown Bay argued that plaintiffs generally do not
have a jury-trial right in admiralty cases—only when the court also has diversity jurisdiction. And Crown Bay asserted
that the parties were not diverse in this case, which the court itself had acknowledged in a previous order. In response
to this motion, the District Court ruled that both Mala and Crown Bay were citizens of the Virgin Islands. The court

therefore struck Mala's jury demand, but nevertheless opted to empanel an advisory jury.
The trial began at the end of 2010—nearly four and a half years after Mala filed his complaint. The delay is partly
attributable to the District Court's decision to postpone the trial until after Mala's release from prison. At the close of
Mala's case-in-chief, Crown Bay renewed a previous motion for summary judgment. The court granted the motion on
the negligent-supervision claim but allowed the negligent-maintenance claim to go forward. At the end of the trial, the
advisory jury returned a verdict of $460,000 for Mala—$400,000 for pain and suffering and $60,000 in compensatory
damages. It concluded that Mala was 25 percent at fault and that Crown Bay was 75 percent at fault. The District Court
ultimately rejected the verdict and entered judgment for Crown Bay on both claims.
After his loss at trial, Mala filed a flurry of motions, asking the court to vacate its judgment and hold a new trial.
These motions contained numerous overlapping objections. A magistrate judge prepared three Reports and
Recommendations that summarized Mala's claims and urged the District Court to reject all of them. Judge Sanchez
adopted these recommendations and explained his reasoning in an eight-page opinion.
This appeal followed. Mala argues that the District Court made three reversible errors. First, the court failed to
accommodate Mala as a pro se litigant. Second, it improperly denied his request for a jury trial. Third, it erroneously
adopted the magistrate's recommendations. W e consider and reject these arguments in turn.FN4
FN4. The District Court had admiralty jurisdiction under 28 U.S.C. § 1333(1). Mala argues that the court also
had diversity jurisdiction under 28 U.S.C. § 1332. This argument determines the outcome of Mala's jury claim,
so we will discuss it in Part III. At all events, we have jurisdiction under 28 U.S.C. § 1291.
II
Mala first argues that the District Court did not give appropriate consideration to his status as a pro se litigant.
Specifically, he claims that the District Court should have provided him with a pro se manual—a manual that is available
to pro se litigants in other districts in the Third Circuit and throughout the country. W e conclude that pro se litigants
do not have a right to general legal advice from judges, so the District Court did not abuse its discretion by failing to
provide a manual.
According to Mala, “[t]here is comparatively little case law regarding the responsibility of courts to provide
information and assistance to the pro se party.” Appellant's Br. at 7. A more accurate statement is that there is no
case law requiring courts to provide general legal advice to pro se parties. In a long line of cases, the Supreme Court
has repeatedly concluded that courts are under no such obligation. See, e.g., McKaskle v. Wiggins, 465 U.S. 168,
183–184, 104 S.Ct. 944, 79 L.Ed.2d 122 (1984) (“A defendant does not have a constitutional right to receive personal
instruction from the trial judge on courtroom procedure. Nor does the Constitution require judges to take over chores
for a pro se defendant that would normally be attended to by trained counsel as a matter of course.”); McNeil v.
United States, 508 U.S. 106, 113, 113 S.Ct. 1980, 124 L.Ed.2d 21 (1993); Faretta v. California, 422 U.S. 806, 834 n.
46, 95 S.Ct. 2525, 45 L.Ed.2d 562 (1975).
[1][2] The Supreme Court revisited this line of cases nearly a decade ago. In Pliler v. Ford, 542 U.S. 225, 124
S.Ct. 2441, 159 L.Ed.2d 338 (2004), the Court rejected the idea that district courts must provide a specific warning to
pro se litigants in certain habeas cases. It concluded that “[d]istrict judges have no obligation to act as counsel or
paralegal to pro se litigants.” Id. at 231, 124 S.Ct. 2441. After all, a “trial judge is under no duty to provide personal
instruction on courtroom procedure or to perform any legal ‘chores' for the defendant that counsel would normally carry
out.” Id. (quoting Martinez v. Court of Appeal of Cal., Fourth Appellate Dist., 528 U.S. 152, 162, 120 S.Ct. 684,
145 L.Ed.2d 597 (2000)) (quotation marks omitted). Because of this general rule, courts need not, for example, inform
pro se litigants of an impending statute of limitation. See Outler v. United States, 485 F.3d 1273, 1282 n. 4 (11th
Cir.2007) (“[N]o case has ever held that a pro se litigant should be given actual notice of a statute of limitations.”).

[3] The general rule, then, is that courts need not provide substantive legal advice to pro se litigants. Aside from
the two exceptions discussed below, federal courts treat pro se litigants the same as any other litigant. This rule makes
sense. Judges must be impartial, and they put their impartiality at risk—or at least might appear to become partial to
one side—when they provide trial assistance to a party. See Pliler, 542 U.S. at 231, 124 S.Ct. 2441 (“Requiring district
courts to advise a pro se litigant ... would undermine district judges' role as impartial decisionmakers.”); Jacobsen v.
Filler, 790 F.2d 1362, 1364 (9th Cir.1986); see also Julie M. Bradlow, Comment, Procedural Due Process Rights of
Pro Se Civil Litigants, 55 U. Chi. L.Rev. 659, 671 (1988) (“[E]xtending too much procedural leniency to a pro se litigant
risks undermining the impartial role of the judge in the adversary system.”). Moreover, this rule eliminates the risk that
judges will provide bad advice. See Pliler, 542 U.S. at 231–32, 124 S.Ct.
2441 (noting that warnings and other legal advice “run the risk of being misleading themselves”); see also Robert
Bacharach & Lyn Entzeroth, Judicial Advocacy in Pro Se Litigation: A Return to Neutrality, 42 Ind. L.Rev. 19, 42 (2009)
( “[G]iving legal advice is prohibited by multiple canons of judicial conduct.”).
To be sure, some cases have given greater leeway to pro se litigants. These cases fit into two narrow exceptions.
First, we tend to be flexible when applying procedural rules to pro se litigants, especially when interpreting their
pleadings. See, e.g., Higgs v. Att'y Gen., 655 F.3d 333, 339 (3d Cir.2011) (“The obligation to liberally construe a pro
se litigant's pleadings is well-established.”). This means that we are willing to apply the relevant legal principle even
when the complaint has failed to name it. Dluhos v. Strasberg, 321 F.3d 365, 369 (3d Cir.2003). And at least on one
occasion, we have refused to apply the doctrine of appellate waiver when dealing with a pro se litigant. Tabron v.
Grace, 6 F.3d 147, 153 n. 2 (3d Cir.1993). This tradition of leniency descends from the Supreme Court's decades-old
decision in Haines v. Kerner, 404 U.S. 519, 92 S.Ct. 594, 30 L.Ed.2d 652 (1972). In Haines, the Court instructed
judges to hold pro se complaints “to less stringent standards than formal pleadings drafted by lawyers.” Id. at 520, 92
S.Ct. 594; see Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007).
We are especially likely to be flexible when dealing with imprisoned pro se litigants. Such litigants often lack the
resources and freedom necessary to comply with the technical rules of modern litigation. See Moore v. Florida, 703
F.2d 516, 520 (11th Cir.1983) (“Pro se prison inmates, with limited access to legal materials, occupy a position
significantly different from that occupied by litigants represented by counsel”). The Supreme Court has “insisted that
the pleadings prepared by prisoners who do not have access to counsel be liberally construed and [has] held that
some procedural rules must give way because of the unique circumstance of incarceration.” McNeil v. United States,
508 U.S. 106, 113, 113 S.Ct. 1980, 124 L.Ed.2d 21 (1993) (citations omitted). Accordingly, the Supreme Court has
concluded that pro se prisoners successfully file a notice of appeal in habeas cases when they deliver the filings to
prison authorities—not when the court receives the filings, as is generally true. Houston v. Lack, 487 U.S. 266, 270–
71, 108 S.Ct. 2379, 101 L.Ed.2d 245 (1988) (“Such prisoners cannot take the steps other litigants can take to monitor
the processing of their notices of appeal and to ensure that the court clerk receives and stamps their notices of appeal
before the 30–day deadline.”).
[4][5] Yet there are limits to our procedural flexibility. For example, pro se litigants still must allege sufficient facts
in their complaints to support a claim. See Riddle v. Mondragon, 83 F.3d 1197, 1202 (10th Cir.1996). And they still
must serve process on the correct defendants. See Franklin v. Murphy, 745 F.2d 1221, 1234–35 (9th Cir.1984). At
the end of the day, they cannot flout procedural rules—they must abide by the same rules that apply to all other
litigants. See McNeil, 508 U.S. at 113, 113 S.Ct. 1980 (“[W]e have never suggested that procedural rules in ordinary
civil litigation should be interpreted so as to excuse mistakes by those who proceed without counsel.”); Kay v. Bemis,
500 F.3d 1214, 1218 (10th Cir.2007).
[6] The second exception to our general rule of evenhandedness is likewise narrow. W e have held that district
courts must provide notice to pro se prisoners when converting a motion to dismiss into a motion for summary
judgment. See Renchenski v. Williams, 622 F.3d 315, 340 (3d Cir.2010). In particular, courts must tell pro se

prisoners about the effects of not filing any opposing affidavits. Id.; see also Somerville v. Hall, 2 F.3d 1563, 1564
(11th Cir.1993); Neal v. Kelly, 963 F.2d 453, 457 (D.C.Cir.1992); Klingele v. Eikenberry, 849 F.2d 409, 411 (9th
Cir.1988) (concluding that the rule applies only to pro se prisoners). But see Williams v. Browman, 981 F.2d 901,
903–04 (6th Cir.1992) (holding that such notice is unnecessary); Martin v. Harrison Cnty. Jail, 975 F.2d 192, 193 (5th
Cir.1992) (same).
Similarly, the Supreme Court has required district courts to provide notice to pro se litigants in habeas cases
before converting any motion into a motion to vacate under 28 U.S.C. § 2255. See Castro v. United States, 540 U.S.
375, 383, 124 S.Ct. 786, 157 L.Ed.2d 778 (2003). The underlying principle is simple: when a court acts on its own in a
way that significantly alters a pro se litigant's rights—for example, by converting one type of motion into a different
type of motion—the court should inform the pro se party of the legal consequences. But as the Supreme Court made
clear only a few months after Castro, notice is the exception. Nonassistance is the rule. See Pliler, 542 U.S. at 231,
233–34, 124 S.Ct. 2441.
That brings us back to Mala's claim. Mala argues that the District Court should have provided him with a pro se
manual. Various district courts have created manuals to help pro se litigants navigate the currents of modern
litigation. See, e.g., U.S. District Court for the Eastern District of Pennsylvania, Clerk's Office Procedural Handbook
(2012), http: //www. paed. uscourts. gov/ documents/ handbook/ handbook. pdf; U.S. District Court for the Western
District of Pennsylvania, Pro Se Package: A Simple Guide to Filing a Civil Action (2009), http:// www. pawd. uscourts.
gov/ Documents/ Forms/ PROSE_ manual_ 2009. pdf; U.S. District Court for the District of New Jersey, Procedural
Guide for Pro Se Litigants (2006), http:// www. njd. uscourts. gov/ rules/ proselit- guide. pdf. These manuals are
generally available online and in the clerk's office. They explain how to file a complaint, serve process, conduct
discovery, and so forth. In addition, public-interest organizations have supplemented these manuals by publishing
their own guides for pro se litigants. See, e.g., Columbia Human Rights Law Review, A Jailhouse Lawyer's Manual
(9th ed.2011), http:// www 3. law. columbia. edu/ hrlr/ jlm/ toc/.
These manuals can be a valuable resource for pro se litigants. They may help litigants assert and defend their
rights when no lawyer is available. And they can reduce the administrative burden on court officials who must grapple
with inscrutable pro se filings. Because these manuals do not provide case-specific advice and because they are
available to all litigants—not just to pro se litigants—they do not impair judicial impartiality. See Nina I. VanWormer,
Note, Help at Your Fingertips: A Twenty–First Century Response to the Pro Se Phenomenon, 60 Vand. L.Rev. 983,
1018 (2007) (“By providing pro se litigants with easy, understandable, and reliable access to both procedural and
substantive law, court systems can uphold their mandate to impartially administer justice to all, while at the same time
increasing the efficiency with which they can manage their dockets.”). Without a doubt, these manuals are
informative, and inexperienced litigants would do well to seek them out.
[7][8] That said, nothing requires district courts to provide such manuals to pro se litigants. See Pliler, 542 U.S. at
231, 124 S.Ct. 2441 (“District judges have no obligation to act as counsel or paralegal to pro se litigants.”). To put it
another way, pro se litigants do not have a right—constitutional, statutory, or otherwise—to receive how-to legal
manuals from judges. See McKaskle, 465 U.S. at 183–184, 104 S.Ct. 944 (“[T]he Constitution [does not] require
judges to take over chores for a pro se defendant that would normally be attended to by trained counsel as a matter
of course.”). And Mala has less reason to complain than the neophyte pro se litigant, having filed more than twenty
suits in the past. See Appellee's Br. at 21–23. His experiences have made him well acquainted with the courts. See
Davidson v. Flynn, 32 F.3d 27, 31 (2d Cir.1994) (refusing to be flexible when interpreting a complaint because the
plaintiff was “an extremely litigious inmate who [was] quite familiar with the legal system and with pleading
requirements”); Cusamano v. Sobek, 604 F.Supp.2d 416, 445–46 (N.D.N.Y.2009). The District Court's failure to
provide Mala with a pro se litigation manual was not an abuse of discretion.FN5
FN5. W e would reject Mala's claim even if the District Court had an obligation to provide a pro se manual. For

one thing, Mala never identified anything that he would have done differently if he had access to such a
manual. Moreover, it is unclear why he needed a pro se manual from the District Court of the Virgin Islands.
He could have received a manual from other district courts or from public-interest organizations. These
manuals are easy to access through an internet search, which Mala could have performed while doing his
legal research at the local library. Any error therefore would be harmless.
[9] Mala also suggests that the District Court abused its discretion by not considering his status as a prisoner
during the early stages of litigation. His problem, however, is that he has not identified anything in particular that the
court should have done differently. In fact, the court was solicitous of Mala's needs as an incarcerated litigant—
delaying the trial until his release from prison and allowing him to amend the complaint at least once despite his
noncompliance with Rule 15(a). Contrary to Mala's suggestion, the court accommodated his status as a prisoner.
III
[10] Mala next argues that the District Court improperly refused to conduct a jury trial. This claim ultimately
depends on whether the District Court had diversity jurisdiction. The court concluded that it had only admiralty
jurisdiction, and Mala urges us to conclude otherwise. We generally exercise plenary review over jurisdictional
questions, but factual findings that “underline a court's determination of diversity jurisdiction ... are subject to the clearly
erroneous rule.” Frett–Smith v. Vanterpool, 511 F.3d 396, 399 (3d Cir.2008) (citation and quotation marks omitted).
Here, the District Court found that both Mala and Crown Bay were citizens of the Virgin Islands. These findings were
not clearly erroneous, and so we conclude that Mala did not have a jury-trial right.
[11][12][13][14] The Seventh Amendment creates a right to civil jury trials in federal court: “In Suits at common
law ... the right of trial by jury shall be preserved.” U.S. Const. amend. VII. Admiralty suits are not “Suits at common
law,” which means that when a district court has only admiralty jurisdiction under 28 U.S.C. § 1331(1), the plaintiff
does not have a jury-trial right. Complaint of Consolidation Coal Co., 123 F.3d 126, 132 (3d Cir.1997) (citing Waring v.
Clarke, 46 U.S. (5 How.) 441, 458–60, 12 L.Ed. 226 (1847)). But the saving-to-suitors clause in § 1333(1) preserves
state common-law remedies. U.S. Express Lines Ltd. v. Higgins, 281 F.3d 383, 390 (3d Cir.2002). This clause allows
plaintiffs to pursue state claims in admiralty cases as long as the district court also has diversity jurisdiction. Id. In
such cases, § 1333(1) preserves whatever jury-trial right exists with respect to the underlying state claims. Gorman v.
Cerasia, 2 F.3d 519, 526 (3d Cir.1993) (noting that the saving-to-suitors clause saves “common law remedies,
including the right to a jury trial”); see also Ross v. Bernhard, 396 U.S. 531, 537–38, 90 S.Ct. 733, 24 L.Ed.2d 729
(1970).
[15] Mala argues that the District Court had both admiralty and diversity jurisdiction. As a preliminary matter, the
court certainly had admiralty jurisdiction. The alleged tort occurred on navigable water and bore a substantial
connection to maritime activity. See Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527, 534,
115 S.Ct. 1043, 130 L.Ed.2d 1024 (1995) (explaining the two-part test for admiralty jurisdiction under § 1333(1)).
[16][17] The grounds for diversity jurisdiction are less certain. District courts have jurisdiction under 28 U.S.C. §
1332 only if the parties are completely diverse. Barefoot Architect, Inc. v. Bunge, 632 F.3d 822, 836 (3d Cir.2011).
This means that no plaintiff may have the same state or territorial citizenship as any defendant. Id. The parties agree
that Mala was a citizen of the Virgin Islands. He was imprisoned in Puerto Rico when he filed the suit, but his
imprisonment is of no moment. Prisoners presumptively retain their prior citizenship when the gates close behind
them. See Hall v. Curran, 599 F.3d 70, 72 (1st Cir.2010); Smith v. Cummings, 445 F.3d 1254, 1260 (10th Cir.2006);
Sullivan v. Freeman, 944 F.2d 334, 337 (7th Cir.1991). No one challenges that presumption here.
[18] Unfortunately for Mala, the District Court concluded that Crown Bay also was a citizen of the Virgin Islands.
Mala rejects this conclusion, stating that the sole defendant was Marina Management Services—a Florida corporation
that operated Crown Bay Marina as one of its divisions. For its part, Crown Bay acknowledges that Marina

Management Services managed the day-to-day operations at Crown Bay Marina, but Crown Bay argues that the two
were separate legal entities. We recognize that the District Court could have done more to clarify the relationship
between these two entities.FN6 Even so, Mala's claim must fail.
FN6. A few months before trial, the District Court decided to “clarify the pre-trial status of [the] case.” JA 131.
Because no one else had been served, the court dismissed all defendants other than “Marine Services
Management d/b/a Crown Bay Marina, Inc.” JA 132. The acronym “d/b/a” stands for “doing business as” and
typically indicates that the second name (here, “Crown Bay Marina, Inc.”) is the party's trade name, whereas
the first name (here, “Marine Services Management,” which seems to be a reference to Marina Management
Services) is the party's legal name. See, e.g., Tai–Si Kim v. Kearney, 838 F.Supp.2d 1077, 1090
(D.Nev.2012). This suggests that a Florida corporation was the sole defendant.
On the other hand, during the pre-trial proceedings, Crown Bay claimed to be a Virgin Islands entity, separate
from Marina Management Services, see JA 122, and later provided testimony to support that claim, see
Trial 12/6 at 75–76. Also, the District Court concluded that it lacked diversity jurisdiction. See JA
96. n.3. This suggests that the sole defendant was a Virgin Islands business and that Marina Management
Services was a separate entity.
[19] Mala bears the burden of proving that the District Court had diversity jurisdiction. McCann v. Newman
Irrevocable Trust, 458 F.3d 281, 286 (3d Cir.2006) (“The party asserting diversity jurisdiction bears the burden of ...
proving diversity of citizenship by a preponderance of the evidence.”). Mala failed to meet that burden because he did
not offer evidence that Crown Bay was anything other than a citizen of the Virgin Islands. Mala contends that Crown
Bay admitted to being a citizen of Florida, but Crown Bay actually denied Mala's allegation that Crown Bay Marina
was a division of “Marine Management Services.” Compare JA 55 ¶ 9 (alleging that Crown Bay Marina was a “corporate
entity” under “Marine Management Services”), with JA 61 ¶ 9 (admitting that “Marine Management Services” is
a Florida corporation but denying everything else).FN7
FN7. Mala also points out that during a pretrial hearing, Crown Bay's attorney introduced himself as “Mark
Wilczynski on behalf of Marina Management Services, Inc.” JA 144. But this statement does not appear to be
an admission that Crown Bay was the same entity as Marina Management Services. Indeed, Crown Bay's
attorney might have introduced himself this way simply because the District Court had previously identified
the defendant as “Marine Services Management d/b/a Crown Bay Marina, Inc.”
Absent evidence that the parties were diverse, we are left with Mala's allegations. Allegations are insufficient at
trial. McCann, 458 F.3d at 286 (requiring a showing of diversity by a preponderance of the evidence). And they are
especially insufficient on appeal, where we review the District Court's underlying factual findings for clear error. Frett–
Smith, 511 F.3d at 399. Under this standard, we will not reverse unless “we are left with the definite and firm conviction”
that Crown Bay was in fact a citizen of Florida. Id. (quotation mark omitted). Mala has not presented any credible
evidence that Crown Bay was a citizen of Florida—much less evidence that would leave us with the requisite “firm
conviction.”
[20][21] Mala tries to cover up this evidentiary weakness by again pointing to his pro se status. He argues that we
should construe his complaint liberally to find diversity. But Mala's problem is not a pleading problem. It is an evidentiary
problem. Our traditional flexibility toward pro se pleadings does not require us to indulge evidentiary deficiencies. See
Brooks v. Kyler, 204 F.3d 102, 108 n. 7 (3d Cir.2000) (indicating that pro se litigants still must present at least affidavits
to avoid summary judgment). Accordingly, the parties were not diverse and Mala does not have a jury-trial right.FN8
FN8. At various times, Mala suggested that the District Court also had supplemental jurisdiction. It is unclear

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